How to always beat the S&P 500
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[quote=buyandhold] [quote=Gaddock]
I can beat the S&P all the time without exception. I'll bet many of you probably just had a negative response to that statement. [/quote]This would be an incorrect statement if you are referring to you previous strategy with a $5mm account and SPY. Holes everywhere.
[quote=buyandhold] [quote=Gaddock]
I can beat the S&P all the time without exception. I'll bet many of you probably just had a negative response to that statement. [/quote]I have a negative response to that statement. While I think you are smart, engaging and have had a nice run the past 18 months, I'd be very nervous as a prospect if anybody spoke to me with that kind of certainty. I suspect there are risks and traps out there that you will surprise you someday. We've seen a lot of smart guys go bust in the last 10 years when things happened outside their systems.
[/quote] FYI ALL this is not something I WOULD EVER SAY to a client or prospect, although I think I could. This is simply a thread on a broker BBS that I was hoping for some cool views from others out there. This is a thread to talk about possible strategies that just might beat the S&P always. I know if I buy the SPY I can ALWAYS have the same return. Why not beat it even just by basis points.
[quote=Sam Houston][quote=buyandhold] [quote=Gaddock]
I can beat the S&P all the time without exception. I'll bet many of you probably just had a negative response to that statement. [/quote]This would be an incorrect statement if you are referring to you previous strategy with a $5mm account and SPY. Holes everywhere.
[/quote] Hey Sam tear it to tatters I don't see the holes everywhere, although there are clearly a few. Will you please elaborate?
[quote=Gaddock][quote=Sam Houston][quote=buyandhold] [quote=Gaddock]
I can beat the S&P all the time without exception. I'll bet many of you probably just had a negative response to that statement. [/quote]This would be an incorrect statement if you are referring to you previous strategy with a $5mm account and SPY. Holes everywhere.
[/quote] Hey Sam tear it to tatters I don't see the holes everywhere, although there are clearly a few. Will you please elaborate?[/quote] Sure. I am referring specifically to your strategy using SPY, an option @ $103, and a $5mm client requestingg you beat the S&P. In order to do $5mm, you would need about 5000 shares and 50 contracts. The shares are easily purchased, however 50 contracts (using the price and day in your example) are another matter. Only 12 contracts traded that day. So you would need 4 times the volume just to fill this order, and you would need to get them all. By using an option so far out of the money, liquidity would be an ongoing concern. This works with the VIX @ 40+. This is the only reason any 103 options are trading in the first place. If the VIX were to go to 25, which is still historically high, this strategy would not work at all and you said "Beat the S&P all the time without exception". VIX drops, you fail on the price of the option. Slippage in SPY, you fail. Liquidity in the option would cause you to fail quite often. A bad fill on the initial purchase of SPY would cause you to fail. Just a few thoughts. I think your a smart guy, but this world if filled with smart guys. Don't you think if this could be accomplished with regularity, someone would market it against VFINX (little bit of money there) and make a killing? Even those guys trail the S&P by a few basis points consistently.
If the vix declines so does the IV and in turn the Delta allowing to sell a call closer in. If you hit the bid I don’t think liquidity would be a problem AND who said you needed to cover them all? just 10 contracts would be enough I would think. As for the SPY fill it CLEARLY would not be a market order. I would have an AON on the ask and wait to get the fill on my terms. Put it in with the TRIN at .5 or less I see no problem on that. After fighting to get fills pair trading the one thing I can do well is get a decent fill.
Selling the call closer in would mean the odds of getting called and missing upside increase. Remember you said always. Lower VIX would mean higher chance of getting called. 10 contracts would not cover the 1% wrap in your example. You would need at least 35 contracts in your example just the cover the 1% wrap. More contracts in you want to add return. On a side note, taxes on the options would also negate your "outperformance".If the vix declines so does the IV and in turn the Delta allowing to sell a call closer in. If you hit the bid I don’t think liquidity would be a problem AND who said you needed to cover them all? just 10 contracts would be enough I would think. As for the SPY fill it CLEARLY would not be a market order. I would have an AON on the ask and wait to get the fill on my terms. Put it in with the TRIN at .5 or less I see no problem on that. After fighting to get fills pair trading the one thing I can do well is get a decent fill.
Taxes are a constant and would only be paid on option premium. The 1% is the agreed amount of commission and not part of the equation. Lower Vix would lower the IV and the Delta & Standard Deviation respectively, keeping the odds of assignment constant or lower not higher. Lets not forget about rolling if needed. Most roles I take come with a credit
If I can generate just one cent above the SPY it's mission accomplished. You could also sell puts that have a 99.99 probability of not getting banged. Can even do a revcon, the risk on that trade is literally in basis points. The way interest rates are going I'll bet a cash carry trade could last for years. What do you think of the arb on city I wrote about above?[quote=Gaddock]
For theoretical conversation only, don’t do this at home kids OK ladies ... another broker extraordinaire IMHO, who also occasions this BBS, told me one hell of a trade. There's around a 20% premium on what city is going to convert their preferred to. If you can get any C short, buy as many shares required of the preferred needed to cover the short on the conversion. The dilution is sure to crush C not to mention all those that have the preferred beyond this arb are going to want to sell the converted shares asap. You should kill it on the arb and the short. IF I could get enough shares of C short I would go as high as 10% of a clients account value. Is this a once in a decade trade? Anybody care to shoot holes in it? CHA CHING!!!!!!!!!!!!???!!!!!!!!!!![/quote]Hedge funds have been playing in that space already for weeks. Better make sure you look carefully for any holes in the logic so as to avoid getting crushed if the hedgies decide they need out....just my 2 cents.
Well I’m sure they have and like GM the shorts are larger than the float. The advantage I (we) have is IF we can get any C to short there is no negative interest. Like GM were you to get shares to short on “The Street” you would be paying as much as 120% negative interest. That puts a hurting on the arb as much as it does a reverse conversion. But we in retail don’t pay that so its a good trade. And yes I studied it very well on the SEC website to be certain of the conversion numbers. You’re right about the details on a trade like this. You better know them cold. I’m not seeing as much competition for this trade as one would think. But IF the hedge funds did creat a short squeeze I don’t think it would last long and when they actually convert the shares C will be a penny stock when the buy and hold accounts dump their shares, IMHO.